THE TRUTH ABOUT BANKS / IONUŢ DUMITRU: "The NBR periodically subjects banks to harsher scenarios than the one of the ECB"

The Romanian banking environment is under no circumstances in a state of vulnerability, according to economist Ionuţ Dumitru, president of the Fiscal Council. He told us: "The local banks have been constantly pressured by the NBR and have increased their capital, meaning that the Romanian branches have a capital adequacy ratio of 14-16%, which in the case of certain banks goes as high as 17-18%".

We may see some mergers and acquisitions in Romania as well, but only in the context of the market's slowdown, the economist says. In his opinion, there will be significant challenges in terms of the regulations in the sector, which will lead to some smaller banks asking themselves the question whether they want to continue being everything to all customers or to focus on specific customer segments.

"At any rate, we can say that the NBR periodically subjects banks to stress tests that are based on even harsher conditions than the ECB", Ionuţ Dumitru concluded.

He also claims that financial institutions have boosted their capital at a European level as well: "I think that it was to be expected that there would be no major surprises following the publication of the stress tests conducted by the ECB. The majority of the financial institutions have raised capital during the crisis. Generally, in the past years, capital requirements have been issued and many of the banks have succeeded in raising capital from the financial markets. At this time, we couldn't talk about a vulnerability of the banking system, especially so when it comes to the Romanian banking system".

Ionuţ Dumitru considers that the market won't produce any spectacular surprises in the near future, especially compared to what was happening in the first year of crisis.

At a European level, the banks with low capital will look for solutions to bolster capital or will restructure their assets, Mr. Dumitru said.

On Sunday the European Central Bank (BCE) published the results of the stress tests conducted on a number of European banks. According to the ECB, there would be 25 banks that would not withstand the stress factors taken into consideration in the tests, which would make the additional capital requirements reach 25 billion Euros.

However, the ECB states that out of the 25 banks that failed the test, 12 have already covered their needs for additional capital, and the others are expected to do so by spring 2015. The first step which the targeted banks are required to take is to present a turnaround plan, in the coming weeks.

Out of the 25 banks, that failed the stress tests, five have subsidiaries in Romania as well: National Bank of Greece (Banca Românească), Piraeus Bank (Piraeus Bank România), Österreichische Volksbanken-AG (Volksbank), Veneto Banca (Veneto Banca) and Eurobank (Bancpost).

• BNR: "Romanian subsidiaries of the bank groups that were tested have capital adequacy ratios that are higher than the regulated thresholds"

The National Bank of Romania (NBR) yesterday said, in a press release, that Romanian subsidiaries of the bank groups included in this evaluation have capital adequacy ratios that exceed the regulatory requirements.

The representatives of the NBR claim that the results of the stress tests that it performed at the level of the Romanian banking system, which have been based on a scenario of severe economic recession and a strong depreciation of the domestic currency over the next three years, reveal that the capital adequacy ratios are at a comfortable level, which are within the internationally required limits.

On Sunday, Nicolae Cinteză, the head of the Oversight Department of the National Bank of Romania (NBR), told us: "The tests were performed based on a static situation, valid on December 31st, 2013, and also on a dynamic situation, taking into account the program for the restructuring of banks established by the European Commission. In this context, if we look carefully, we will see that even though based on the static evaluation, Greek banks would be unable to withstand situations of economic stress, after the application of the program imposed by the European Commission, they pass the tests both on the basic scenario, as well as the adverse one. The only which is also present in Romania that might have problems is Volksbank, but the ratios of its Romanian subsidiary are far above the minimum required threshold".

• Officials of Volksbank Romania: "The stress tests have no impact on the Romanian subsidiary of Volksbank"

The stress tests have no impact on the Romanian subsidiary of Volksbank, the bank's officials told us yesterday, and they emphasized that "Volksbank România is a heavily capitalized bank, with a solvency ratio of 17.8% (at the end of September 2014), higher than the minimum domestic requirements (10%).

Another important element that should be mentioned is the fact that ECB tests did not take into consideration the measures taken in 2014, that concerned the reduction of the non-performing loans portfolio or the planned restructuring of the Association of Volksbank banks, which occurred after the tests ended, namely December 31st 2013".

The representatives of Volksbank wanted to mention that Volksbank România has a shareholder structure that is "diversified and solid, specifically VBAG - 51%, BPCE - 24.5%, DZ Bank - 16.36% and WGZ Bank - 8.14%".

Following the successful restructuring of the bank, among other things, a portfolio of non-performing loans worth 495 million Euros was sold, according to the quoted sources, which added that the bank has also performed a major capital increase, of 321 million Euros, which was completed this month.

At a group level, the Austrian Association Volksbank, Volksbank has a capital deficit of 864.72 million Euros, according to the ECB.

Concerning the results of the stress tests, Stephan Koren, the managing director of the bank, yesterday said, in a press release: "This result is not a surprise. The Board of Directors of the Bank has mentioned on other occasions that the Volksbank Association will need additional funding in the coming years, a fact that is emphasized by the stress tests. Together with the authorities, Österreichische Volksbanken-AG will implement its plans to restructure the Association, which were presented in the beginning of October. The goal is to lay the foundation and to set the framework which will ensure a successful future for the Volksbank Association".

Since June 30, 2014, the Volksbank Association has a "strengthened" base capital ratio, of 11.2%, thus having a core equity tier 1 ratio of that exceeds the requirements by 1.9 billion Euros, the press release states.

Volksbank plans a spin-off, with the central organization and services operations to be transferred to a regional branch.

• Piraeus Bank: "The bank has seen rates of its Tier 1 Equity Ratio above the required levels"

Piraeus Bank, of Greece, announces that under the dynamic scenario, the bank has seen a ratio of Tier 1 Equity of 11.4% as part of the base scenario and 6.7% in the case of the adverse scenario, both ranking high above the minimal levels of 8%, and 5.5% specifically.

"However, the two levels did not take into account the benefits of a potential conversion of the receivables concerning deferred taxes into loans pertaining to deferred taxes", the press release addressed by the financial institution sent by the institution yesterday further states.

This shows that if the conversion of the receivables concerning deferred taxes were taken into consideration, the Tier CT1 ratio in the Static Balance Sheet Approach would increase to 11.8% in the case of the base scenario and to 7.7% in the case of the adverse scenario.

Cătălin Pârvu, CEO of Piraeus Bank România, emphasized that the bank "has continued its positive evolution which was characteristic to the beginning of 2014, meaning that the bank's profit has advanced from 4.6 million Euros, in Q1 2014, to over 6.4 million Euros in the first semester. This upwards trend is in line with the strategy of the parent-bank, as well as with the plan of the Piraeus Group to undergo restructuring by 2018, approved by the European Commission, a plan which forecasts an increase in the business of Piraeus Bank in Romania.

The results were helped by the decrease of non-performing loans and the reduction in provision costs, by the positive evolutions seen in the area of corporate and SME lending, as well as by the advance in the attracting of sources".

• Veneto Banca has announced that it will not have to conduct any action for consolidating its patrimony

Italian group Veneto Banca has announced yesterday that it will not have to take any action for patrimonial consolidation, following the results of the stress tests announced by the ECB: "Taking into account the measures for the consolidation of capital already taken in the first nine months of 2014 (...), the bank had the following results in the stress tests, which represent an integral part of the Comprehensive Assessment of the Asset Quality Review (AQR): in the < base > scenario: the CET1 ratio obtained following the Comprehensive Assessment is 8.6%, compared to the minimum requirement of 8%; in the < adverse scenario >: the CET1 ratio resulting from the Comprehensive Assessment is 5.6% compared to the minimum stipulated threshold of 5.5%".

In the first nine months of 2014, the Veneto Banca group has taken steps for consolidation, which are visible in the application of the global evaluation, which represents remedial actions which meet the minimal required levels of the CET1, for a total value of 738 million Euros.

The Veneto Banca group announces that on August 4th, 2014, it has performed a capital increase of approximately 483 million Euros, which includes the reevaluation of the stake held in Bank of Italy by approximately 9 million Euros. Among other things, the group has conducted a buyback worth a total of minus 99 million Euros.

• Eurobank claims that it meets the target capital ratio for the asset quality review

Eurobank meets the reference capital requirement set as the asset quality review target goal, according to a statement issued yesterday by the Greek banking group that owns Bancpost in Romania.

Eurobank states that that was possible after collecting 2.9 billion Euros, through the capital increase concluded in May 2014.

According to the press release sent by the Greek group, the capital deficit of the adverse scenario is associated with 2013, a year when the operating performance of Eurobank was affected by "systemic and idiosyncratic" factors.

"The positive impact of the amount of 315 million Euros, originating from the difference between the operating result before provisions of September 2014 and that pertaining to the Dynamic Unfavorable Scenario, leading to an increase by 90 basis points of the CET1 ratio as part of the Dynamic Adverse Scenario", creates a "capital reserve of 1.4 billion Euros, raising the level of the CET1 ratio, in the context of the Dynamic Unfavorable Scenario from 5.5% to 9.5%", the press release by Eurobank states.

The officials of the group consider that these tests represent an unprecedented exercise, given the comprehensive, rigorous and detailed analysis of 130 banks and a significant benchmark in the process of harmonization of the European financial system. "This exercise will also contribute to improving the financial stability of the EU banking system and will provide confidence in the ability of all the tested banks to withstand economic shocks", the quoted sources further said.

• NBG: "The deficit has already been covered through the actions taken in the first six months of the year"

National Bank of Greece (NBG) announces a surplus of 2 billion Euros in the dynamic adverse balance sheet scenario of the stress tests.

The adverse scenario of the Dynamic Balance Sheet of the stress tests conducted by the ECB at NBG, which is taking into consideration the bank's restructuring plan which was also approved by the European Commission for 2014-2018, saw a CET1 ratio of 8.9% and a capital surplus of 2 billion Euros, 340 basis points above the minimum requirement of 5.5%, according to the announcement of the bank.

This emphasizes the fact that static balance sheet of the adverse scenario, which takes under consideration the year 2013, with an accented rate of difficulty for NBG, saw a capital deficit of 0.9 billion Euros, including the capital increase concluded in May 2014. According to the bank, the deficit has already been covered through the actions taken in the first six months of the year.